Dovish Fed sends shares to record

Euro gets added lift as Dutch election soothes EU break-up fears

World stock indexes surged to all-time highs yesterday while the dollar hit a onemonth low, building on moves that followed the Federal Reserve’s interest rate hike and signal there would be no pick-up in the pace of tightening.

Markets also welcomed Dutch centre-right Prime Minister Mark Rutte’s fighting off a challenge by antiimmigration, anti-European Union rival Geert Wilders to score an election win seen as a victory against populist nationalism.

The election result, along with the Fed statement, handed the euro its biggest one-day jump in nine months on Wednesday, with the single currency climbing above $1.07 for the first time since early February and staying above that level yesterday, at $1.0729.

The MSCI world equity index, which tracks shares in 46 countries, jumped 0.7 per cent on the day to reach an all-time high after the Fed lifted its funds rate by 25 basis points, but said further increases would only be “gradual”.

Wall Street futures pointed to a stronger open.

Regional markets

Regional stock markets gained with Dubai index in the lead. The Dubai Financial Market General Index gained 1.25 per cent higher to close at 3,521.33. The Abu Dhabi Securities Exchange general index closed 1.13 per cent higher at 4,424.93. Saudi Arabia’s Tadawul index also gained more than 1 per cent.

Yields on 10-year US Treasuries edged up, having suffered their heaviest falls since last August, while the dollar index — which measures the greenback against six major peers — was down 0.3 per cent at its weakest since midFebruary.

“The bar was high for the FOMC [Federal Open Market Committee] to deliver a hawkish surprise, and one could argue that asset prices, in particular bond yields and the dollar, had been reflecting overshot tightening expectations going into this meeting,” said ING currency strategist Viraj Patel, in London.

Surging sterling

While the Fed surprised markets by being more dovish than expected, the Bank of England went the other way, sending sterling to a two-week high of $1.2364 after minutes showed one of nine rate-setters had voted for an interest rate hike, while others felt it would not take much to follow suit.

“After all the talk of a hawkish surprise from the Fed, it was the Bank of England that took markets by off guard,” said ETX Capital market analyst Neil Wilson.

European shares also rallied, with the pan-European STOXX 600 index climbing 0.7 per cent to its highest level since December 2015 on relief over the Fed’s cautious tone.